Listen to this article

What do you think?

Please tell us why (optional)

Qualcomm, the mobile phone chipmaker, on Wednesday signalled the strength of the handset market as it raised its earnings forecast for the current quarter.

The company, the second-largest maker of mobile phone chips after Texas Instruments, said profits of 32-34 cents per share were expected for the quarter ending on June 25, up from its previous prediction of 30 to 32 cents.

“The increase in our guidance reflects stronger than expected new orders for our very low-tier chipsets as well as increased demand for 1xEV-DO [3G] chipsets,” said Dr Paul Jacobs, chief executive, ahead of Qualcomm’s analyst meeting in New York today.

About 60 per cent of handset sales growth comes from emerging markets, accounting for the strong sales of low-priced chips. US operators are also upgrading services to high-speed wireless such as 1xEV-DO, enabling features such as video streaming and music downloads over phones.

On Monday, the Semiconductor Industry Association (SIA) reported sales of all types of chips rose 7.3 per cent in the first quarter to $59.1bn. But it said the growth was driven by very strong sales of mobile phones, with unit sales up 31 per cent from the first quarter of 2005 and expected to reach 1bn this year.

The average semiconductor content of a mobile phone is now about $41 per unit, according to the iSuppli research firm.

The SIA said that replacement cycles for phones declining from an average of 26 months to 18 months along with robust demand in China were two factors behind the growth.

“China now has approximately 410m cell phone subscribers,” said George Scalise, SIA president. “It is adding new subscribers at the rate of 5m a month, and Chinese consumers appear to be choosing high-end phones with increased functionality.”

Qualcomm said its sales for the quarter could be “at or slightly above the high end of prior guidance” of $1.77bn-$1.87bn, a range that represents a 30-38 per cent increase in revenues on a year ago. It said shipments of its Mobile Station Modem (MSM) chips were now expected to be 53m-56m from 50m-53m.

The higher earnings numbers inferred higher chipset operating margins, according to UBS analysts, who raised their revenue expectations for the quarter to $1.88bn and earnings by 1 cent a share in a research note.